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The Bridge Crowd Guide to UK Bridging Loans

It was once seen as being a specialist financial product but now UK bridging loans have grown in popularity and this Bridge Crowd guide will help explain why.

Bridging loans have become popular for several reasons and are used, generally, to help buy residential and commercial property and also for developers looking to buy at auction.

The uses for a bridging loan are wide and extensive and can also help investors develop and renovate a building project.

The uses also include the option for firms to access a quick cash injection for just about any purpose from buying stock, to paying wages or investing in a marketing incentive.

The finance can also be used for paying an unexpected tax bill or taking advantage of a financial opportunity; the only restrictions will be the value of the security property available to the borrower.

Another reason why bridging loans have grown in popularity is that the high street lenders have tightened their lending criteria in recent years so bridging finance firms have more flexibility in what they can offer borrowers.

In addition, there is also the time element to consider since high street banks may take weeks or even months to process a loan application whereas bridging finance firms can take hours or days depending on the relationship they have with the lender.

A bridging loan is also popular with landlords

A bridging loan is also popular with landlords wanting to develop their buy to let portfolio since the money they can generate will help them refurbish and renovate a property that may not enjoy a mortgage otherwise.

However, despite this rise in popularity, there are still borrowers and investors who may be unfamiliar with how bridging loans work and what purposes they can be used for.

So, it’s important to understand that a bridging loan is usually for a short-term, and this will be for 12 months or less. Some lenders will offer a loan for up to 24 months.

The loan can be used for any purpose by a business or individual until permanent funding or the means to repay the loan are resolved.

For those who may have been unable to secure funding from other sources, bridging loans may be the simple quick cash injection that you need.

There are two types of bridging loans

For those interested in the specialist financial product then there are two types of bridging loans you need to consider and they are:

A closed bridging loan

With a closed bridging loan, the borrower knows when the loan will be repaid, for example, they may be selling their current home but need to buy their next property but know that when the sale goes through they have the money to repay their bridging finance.

An open bridging loan

With an open bridging loan, the borrower does not know when they will have the money to repay their finance but will appreciate that when the loan runs its term then they will need the money to repay.

Bridging loan interest rates UK

That’s the subtle difference between an open and closed bridging loan and because the borrower knows when and how they will get the money to repay the finance then they tend to get the better bridging loan interest rates UK to meet their needs.

So, who are using bridging loans?

As mentioned earlier, the main purpose of bridging finance is to buy residential and commercial property so they are popular with homebuyers, developers, landlords as well as investors.

And because these loans tend to be slightly more expensive than those from high street lenders, borrowers need to appreciate that the loans should be repaid within the agreed term or face the prospect of additional fees and higher rates of interest.

The bridging loan process

The bridging loan application process is straightforward and most lenders will have a loan calculator on their website so you can see how much a potential loan will cost, including the administration charges and surveyor fees.

The first step is to approach the lender with details of the loan required and they may ask for evidence of the property being purchased and proof of the price being paid. This isn’t always the case and some lenders will vary their criteria depending on the purpose of the loan.

The big attraction for bridging finance is that the loan amount will depend on the value of the property being used as security so an independent surveyor will be engaged to establish a valuation. The borrower will pay the surveyor’s fees.

The loan documents will then be sent to the borrower’s solicitor who will explain the conditions and terms of the bridging loan. These documents will need to be signed and the funds will be released.

Lenders can arrange bridging finance within hours or days

While some lenders can arrange bridging finance within hours or days, the process can range from between 7 to 28 days though the longer time period will be for a complex loan application.

The only other point to appreciate about bridging finance is that the interest payments can either be made monthly or when the loan is repaid which is known as ‘rolling-up’.

For more help and advice about understanding the UK bridging loans, then you will need to speak with the team of experts at the Bridge Crowd.